Got money offshore? IRS starts new amnesty program

New program has similar penalties to 2011 program, but no deadline

SAN FRANCISCO (MarketWatch) — If you’ve got money stashed in overseas accounts that you’ve failed to report to the Internal Revenue Service, the tax agency wants to give you another chance to come forward. The IRS said Monday that it’s launching a third voluntary disclosure program — and this one has no deadline.

Like the IRS’s two previous voluntary disclosure programs, taxpayers who come forward to report their overseas accounts face lower penalties than they would pay if the IRS catches them, and they avoid the risk of prosecution.

Under the new program, there’s a 27.5% penalty, up from 25% in the 2011 program, on the highest aggregate balance in a taxpayer’s overseas accounts in the eight years before disclosure. But those whose overseas account balances did not top $75,000 in any year face a lower penalty of 12.5%. Like the previous program, some taxpayers are eligible for an even lower penalty rate of 5%. Taxpayers also owe back taxes and interest. Read more about unwitting tax cheats in this TaxWatch column about the previous disclosure program.

The IRS said the new program’s terms and penalties could change at any time, and the IRS may opt to end the program at any time.

“As we’ve said all along, people need to come in and get right with us before we find you,” said IRS Commissioner Doug Shulman, in the release. “We are following more leads and the risk for people who do not come in continues to increase.”

The IRS said its two previous disclosure programs — one ended in 2011 and one in 2009 — netted the agency about $4.4 billion so far in tax revenue, and the agency is still processing disclosures to the 2011 program.

The IRS received some 33,000 disclosures under the previous programs, and “hundreds of taxpayers” have come forward since the 2011 program closed in September, the IRS said in its release Monday. Those people will be treated under the terms of the new, third program, the IRS said.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” Shulman said. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

Also, the IRS made note of American citizens living in other countries who did not realize they had run afoul of U.S. law by failing to report certain assets.

“The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations,” the release said. “This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax. The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law.”

No deadline

Robert McKenzie, a partner in the Chicago-based law firm Arnstein & Lehr, said he questioned how many people would come forward under a program without a deadline.

“Part of the other program was the deadline. It encouraged people to move forward,” he said. “One of the problems right now is that unless you’ve been under a rock, you’ve probably heard of this in the past. Therefore if you procrastinated during version one and version two, will you not continue to procrastinate under version three? That would be my worry,” McKenzie said.

“I’m sure that more people will come in, but I don’t know that they’ll be a rush,” McKenzie said. “Each time before, as the deadline approached, we suddenly had people arriving. As we faced the deadline in September, we did nine disclosures in the last two days for people who had waited until the last moment.

“With that mentality, will those type of people feel incentivized to come in quickly, other than the fear that they might be caught?” he said. “Certainly, we’re going to continue to say you should come into the program, for appropriate people, and take away the danger of prosecution or very severe penalties.”

McKenzie added: “Any of the people who don’t come in are at risk. How much would you pay to stay out of Club Fed?”

The IRS said more details on the new program would be published in the next month on IRS.gov.

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